A petition for a writ of certiorari was filed with the U.S. Supreme Court yesterday in the case of In re Bilski, 545 F.3d 943 (Fed. Cir. 2008) (en banc). Under Bilski, business methods remain patentable but, as described below, the standard for granting such patents has now been limited.
At one time, business methods were presumed unpatentable. About ten years ago, the Federal Circuit eliminated that presumption by holding that business methods are subject to the same legal requirements for patentability as applied to any other process or method under 35 U.S.C. § 101. State Street Bank & Trust Co. vs. Signature Financial Group Inc., 149 F.3d 1368, 1375 (Fed. Cir. 1998), cert. denied 119 S. Ct. 851 (1999). Those requirements were that business methods must produce a useful, concrete and tangible result. Since State Street , there has been a tremendous increase in the number of U.S. patents for financial services and e-commerce products, including patents that involve annuities, mutual funds, life insurance and property-casualty insurance. There has also been a growing controversy regarding the issuance and enforcement of such patents.
On October 30, 2008, the Federal Circuit set aside the legal requirements of State Street as applied to the patentability of processes and, in a 9-3 decision, held that the machineor- transformation test outlined by the Supreme Court in 1981 (Diamond v. Diehr) is the proper test of the patentability for a process. In re Bilski , 545 F.3d 943. The court stated that a process tied to a particular machine or transforming an article will generally result in a concrete and tangible result, but the useful, concrete and tangible test is insufficient to determine whether a process is patent-eligible under 35 U.S.C. § 101 and that test was never intended to replace the Supreme Court's test. Under the machine-or-transformation test, a process is patentable if it is tied to a particular machine or apparatus or if it transforms a particular article into a different state or thing.
Bernard L. Bilski and Rand A. Warsaw (the "Applicants") sought to patent a method of hedging risk in the commodities market. Their application was rejected by the U.S. Patent and Trademark Office, and the Board of Patent Appeals and Interferences affirmed that rejection. The Applicants claimed a process that mentally and mathematically identified transactions that would hedge risk without the aid of a computer or any other device. Since the claimed method did not involve machines, the Federal Circuit analyzed the business method under only the transformation prong of the test. The court stated that the transformation must be central to the purpose of the claimed process and only specific types of articles may be transformed. Those articles are a physical object or substance or something intangible that is representative of any physical object or substance. Applying the transformation prong, the Federal Circuit affirmed the Board of Patent Appeals and Interferences because the Applicants' method did not transform any article to a different state or thing. The court explained that transformations of legal obligations or relationships, business risks, or other such abstractions are not eligible transformations under the test because they are not physical objects or substances and are not representative of physical objects or substances. The physical steps of initiating and identifying transactions do not transform an article into a different state or thing. A process claim may still be patent-eligible if it lacks physical steps, but the process must be tied to a machine or achieve an eligible transformation.
Although the Supreme Court may grant certiorari, patent owners and applicants will nevertheless be reviewing the strength of their business method portfolios in light of the Bilski decision. And, defendants in business method patent infringement cases will be considering the potential to invalidate patents based on this decision. The final outcome of the Bilski case, along with future patent infringement cases, will ultimately determine the implications of the Federal Circuit's holding in Bilski. It is anticipated that such future cases will involve arguments concerning the degree of computerization required to meet the machine-or-transformation test threshold.
A full copy of the Bilski decision is available by clicking here.